<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
Commission file number 0-22732
PACIFIC CREST CAPITAL, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4437818
- ---------------------------------- ------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30343 Canwood Street
Agoura Hills, California 91301
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(818) 865-3300
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO
------ ------
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 13, 1997.
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
- ------------------------------- ----------------------------
Common Stock, $.01 PAR VALUE 2,967,367
<PAGE>
PACIFIC CREST CAPITAL, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I - FINANCIAL INFORMATION............................................................ 1
Item I: Financial Statements.................................................... 1
Consolidated Balance Sheets............................................ 1
Consolidated Statements of Operations.................................. 2
Consolidated Statements of Shareholders' Equity........................ 3
Consolidated Statements of Cash Flows.................................. 4
Notes to Consolidated Financial Statements............................. 5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 8
Part II - OTHER INFORMATION............................................................... 16
SIGNATURES................................................................................ 17
</TABLE>
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands, except per share data) 1997 1996
- --------------------------------------------- ------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash $ 634 $ 2,572
Securities purchased under resale agreements 416 262
------------- -------------
Cash and cash equivalents 1,050 2,834
------------- -------------
U.S. government agency securities (Note 5):
Held to maturity, at amortized cost 45,960 30,960
Available for sale, at market 72,293 52,534
Loans
Commercial mortgage 209,759 206,172
Residential mortgage 1,595 1,596
Commercial business/other 1,800 1,581
Business Loans - SBA 3,261 2,363
------------- -------------
Total loans 216,415 211,712
Deferred loan fees 576 617
Allowance for loan losses 3,488 3,400
------------- -------------
Net loans 212,351 207,695
Accrued interest receivable 3,981 1,966
Prepaid expenses and other assets 430 772
Deferred income taxes 3,358 3,302
Other real estate owned 2,799 3,469
Premises and equipment 528 553
------------- -------------
Total assets $ 342,750 $ 304,085
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Savings accounts $ 172,070 $ 157,789
Certificates of deposit 95,218 88,826
Money market checking 18,514 20,080
------------- -------------
Total deposits 285,802 266,695
Other borrowings 30,000 10,000
Accrued interest and other liabilities 2,200 2,922
------------- -------------
Total liabilities 318,002 279,617
------------- -------------
Shareholders' equity (Notes 6 and 7):
Common stock, $.01 par value, 10,000,000
shares authorized, 2,967,367 shares issued and
outstanding at March 31, 1997, 2,959,698 shares
issued and outstanding at December 31, 1996 27,899 27,838
Accumulated deficit (2,035) (2,859)
Unrealized loss on securities available for sale,
net of taxes (861) (256)
Common stock in treasury, at cost, 30,000 shares (255) (255)
------------- -------------
Total shareholders' equity 24,748 24,468
------------- -------------
Total liabilities and shareholders' equity $ 342,750 $ 304,085
============= =============
Book value per common share (Note 3) $ 8.43 $ 8.35
============= =============
</TABLE>
See accompanying notes.
1
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,
(Dollars in thousands, except per share data) 1997 1996
- --------------------------------------------- ------------- -------------
<S> <C> <C>
Interest income:
Interest on loans, including fees $ 5,740 $ 5,682
Securities purchased under resale agreements 4 947
Certificates of deposit - 4
U.S. government sponsored agency securities
Available for sale 1,119 34
Held to maturity 814 -
------------- -------------
Total interest income 7,677 6,667
Interest expense:
Savings accounts 2,109 2,464
Certificates of deposit 1,366 830
Money market checking accounts 230 63
Reverse repurchase agreements 249 -
------------- -------------
Total interest expense 3,954 3,357
------------- -------------
Net interest income 3,723 3,310
Provision for loan losses 230 525
------------- -------------
Net interest income after provision for loan losses 3,493 2,785
Noninterest income 101 163
Noninterest expense:
Valuation adjustments to other real estate owned 130 65
Other real estate owned expenses 14 8
Salaries and employee benefits 1,246 1,063
Net occupancy expenses 361 351
FDIC insurance premiums 25 16
Credit and collection expenses - 12
Communication and data processing 165 119
Other expenses 282 153
------------- -------------
Total noninterest expense 2,223 1,787
------------- -------------
Income before income taxes 1,371 1,161
Income tax provision (Note 2) 547 450
------------- -------------
Net income $ 824 $ 711
============= =============
Per share data (Note 3):
Primary earnings per common share $ 0.27 $ 0.24
------------- -------------
Weighted average common shares
outstanding (in thousands) 3,075 3,000
============= =============
Fully diluted earnings per common share $ 0.27 $ 0.24
------------- -------------
Weighted average fully diluted common shares
outstanding (in thousands) 3,081 3,006
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Loss on
Common Stock Treasury stock Securities
----------------- ----------------- Available Accumulated
(Dollars and shares in thousands) Shares Amount Shares Amount for Sale Deficit
- ---------------------------------- ------ ------- ------ ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 2,954 $27,813 - $ - $ - $ (5,862)
----- ------- ------ ------ ----------- -----------
Issuance of stock under employee
stock purchase plan 6 25 - - - -
Unrealized loss on securities
available for sale, net of taxes - - - - (256) -
Purchase of treasury shares - - (30) (255) - -
Net income - - - - - 3,003
----- ------- ------ ------ ----------- -----------
Balances at December 31, 1996 2,960 $27,838 (30) $ (255) $ (256) $ (2,859)
----- ------- ------ ------ ----------- -----------
Issuance of stock under employee
stock purchase plan 6 52 - - - -
Issuance of stock under non-employee
directors' stock purchase plan 1 9 - - - -
Unrealized loss on securities
available for sale, net of taxes - - - - (605) -
Net income - - - - - 824
----- ------- ------ ------ ----------- -----------
Balances at March 31, 1997 2,967 $27,899 (30) $ (255) (861) $ (2,035)
===== ======= ====== ====== =========== ===========
</TABLE>
See accompanying notes
3
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in thousands) 1997 1996
- ---------------------- ------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 824 $ 711
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Provision for loan losses 230 525
Valuation adjustments to OREO 130 65
Depreciation and amortization 67 57
Amortization of deferred loan fees (73) (411)
Amortization/accretion of securities (5) (11)
Changes in operating assets and liabilities:
Accrued interest receivable (2,015) 65
Prepaid expenses and other assets 342 (444)
Deferred income taxes 382 69
Accrued interest and other liabilities (722) (86)
------------ ------------
Net cash (used in) provided by operating activities (840) 540
INVESTING ACTIVITIES:
Purchase of U.S. government sponsored agency securities:
Held to maturity (14,997) -
Available for sale (20,800) (3,000)
Net (decrease)/increase in loans (4,934) 7,287
Purchases of equipment and leasehold improvements, net (42) (5)
Proceeds from sale of other real estate owned 661 -
------------ ------------
Net cash (used in) provided by investing activities (40,112) 4,282
FINANCING ACTIVITIES:
Net increase in CDs 6,392 650
Net (decrease)/increase in money market checking (1,566) 13,931
Net increase in savings accounts 14,281 12,586
Net increase in other borrowings 20,000 -
Proceeds from the issuance of common stock 61 -
------------- -------------
Net cash provided by financing activities 39,168 27,167
Net (decrease)/increase in cash and cash equivalents (1,784) 31,989
Cash and cash equivalents at beginning of period 2,834 56,167
------------- -------------
Cash and cash equivalents at end of period $ 1,050 $ 88,156
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,896 $ 3,362
Income taxes $ - $ -
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Transfers from loans to other real estate owned $ 154 $ 176
============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
NOTE 1. BASIS OF PRESENTATION
- --------------------------------
The interim financial statements included herein have been prepared by
Pacific Crest Capital, Inc., without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Pacific Crest
Capital, Inc. together with its subsidiary is referred to as the "Company".
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such SEC rules and regulations;
nevertheless, the Company believes that the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's latest Annual Report. In the opinion of
management, all adjustments, including normal recurring adjustments necessary to
present fairly the financial position of the Company with respect to the interim
financial statements, and the results of its operations for the interim period
ended March 31, 1997, have been included. Certain reclassifications have been
made to prior year amounts to conform to the 1997 presentation. The results of
operations for interim periods are not necessarily indicative of results for the
full year.
NOTE 2. INCOME TAXES
- -----------------------
For the quarters ended March 31, 1997 and 1996, the Company estimated its
provision for income taxes at $547,000 or 39.9% and $450,000 or 38.8%,
respectively. The difference between the Company's statutory tax rate of 41.6%
and its effective tax rate for the quarters ended March 31, 1997 and 1996 was
due to California tax deductions (credits) generated by the Company on loans
made in special tax zones within California.
NOTE 3. COMPUTATION OF BOOK VALUE AND EARNINGS PER COMMON SHARE
- ------------------------------------------------------------------
Book value per common share was calculated by dividing total shareholders'
equity by the number of common shares outstanding, less treasury shares, at
March 31, 1997 and December 31, 1996. The number of common shares used in the
book value calculation was 2,937,367 at March 31, 1997 and 2,929,698 at December
31, 1996.
The primary earnings per common share and the fully diluted earnings per
common share for the first quarter ended March 31, 1997 were determined by
dividing net income of $824,000 by the weighted average common shares and by the
weighted average fully diluted common shares outstanding of 3,075,000 and
3,081,000, respectively.
The primary earnings per common share and the fully diluted earnings per
common share for the first quarter ended March 31, 1996 were determined by
dividing net income of $711,000 by the weighted average common shares and by the
weighted average fully diluted common shares outstanding of 3,000,000 and
3,006,000, respectively.
For the primary earning per common share and the fully diluted earnings per
common share for both the first quarter of 1996 and 1997, the common shares
outstanding were adjusted to reflect the number of common stock equivalents
outstanding. The common stock equivalents are based on the number of
outstanding stock options issued by the Company utilizing the Treasury stock
method.
NOTE 4. CONTINGENCIES
- ------------------------
LITIGATION
There are several lawsuits and claims pending against the Company which
management considers incident to normal operations, some of which seek monetary
damages. Management, after review, including consultation with counsel, believes
that any ultimate liability which could arise from these lawsuits and claims
would not materially affect the consolidated financial position of the Company.
NOTE 5. INVESTMENT SECURITIES
- --------------------------------
U.S. government sponsored agency securities have been classified in the
consolidated balance sheets according to management's intent. The carrying
amount of securities and their approximate fair values at March 31, 1997 were as
follows:
5
<PAGE>
<TABLE>
<CAPTION>
Amortized Gross Unrealized Estimated
(Dollars in thousands) Cost Gains Losses Fair Value
- ---------------------- --------- ----- ------ ----------
<S> <C> <C> <C> <C>
U.S. Government sponsored agency issued securities
Held to maturity $ 45,960 $ - $ 804 $ 45,156
Available for sale 73,777 - 1,484 72,293
--------- ---- ------ ----------
Total investment securities $ 119,737 $ - $2,288 $ 117,449
========= ==== ====== ==========
</TABLE>
The Company's security portfolio consists primarily of Federal Home Loan
Bank (FHLB) and Federal National Mortgage Association (FNMA) securities. These
securities have call features that allow the issuing agency to retire (call) the
security prior to the securities stated maturity date. The Company's security
portfolio have call dates ranging between three months and two years. The
Company believes that the majority of the Company's securities will be called by
the issuing agency before the final maturity date. The following table reflects
the scheduled maturities of securities in both the held-to-maturity portfolio
and the available-for-sale portfolio at March 31, 1997:
<TABLE>
<CAPTION>
Amortized Fair Average
(Dollars in thousands) Cost Value Yield Life
- ---------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
Due from one to five years $ 5,000 $ 4,957 7.11% 4.0 years
Due from five to ten years 19,996 19,738 7.57% 8.9 years
Due after ten years $ 20,964 20,461 7.88% 14.8 years
--------- --------- --------- ----------
Total held-to-maturity securities: $ 45,960 $ 45,156 7.66% 11.0 years
AVAILABLE-FOR-SALE SECURITIES:
Due from one to five years $ 13,000 $ 12,857 6.76% 4.0 years
Due from five to ten years 60,777 59,436 7.04% 7.5 years
--------- --------- -------- ----------
Total available-for-sale securities: 73,777 72,293 6.99% 6.9 years
--------- --------- --------- ----------
Total investment securities $ 119,737 $ 117,449 7.25% 8.5 years
========= ========= ========= ==========
</TABLE>
U.S. government sponsored agency securities carried at $30.5 million were
pledged to secure other borrowings aggregating $30 million at March 31, 1997.
NOTE 6. CAPITAL
- ------------------
At March 31, 1997, 10,000,000 shares of $0.01 par value common stock were
authorized of which, 2,967,367 shares were issued and outstanding. The
Company issued 6,921 shares of common stock on January 2, 1997 for employees
participating in the Employee Stock Purchase Plan. The Company also issued 748
shares of common stock on January 23, 1997 for the Non-Employee Directors'
participating in the Non-Employee Directors' Stock Purchase Plan.
Pacific Crest Investment is required to maintain certain minimum capital
levels and must maintain certain capital ratios to be considered "well
capitalized" under the prompt corrective action provisions of the FDIC
Improvement Act.
The following table sets forth Pacific Crest Investment's regulatory
capital ratios at March 31, 1997, and December 31, 1996:
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS At March 31, 1997 At December 31, 1996
============================== ==============================
Minimum Minimum
Required Actual Excess Required Actual Excess
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ratio 4.00% 7.36% 3.36% 4.00% 7.96% 3.96%
Tier 1 risk-based capital ratio 4.00% 10.23% 6.23% 4.00% 10.31% 6.31%
Total risk-based capital ratio 8.00% 11.48% 3.48% 8.00% 11.56% 3.56%
======== ====== ====== ======== ====== ======
</TABLE>
6
<PAGE>
NOTE 7. DIVIDENDS
- -----------------------
As a Delaware corporation, Pacific Crest Capital, Inc., (the parent), may
pay common dividends out of surplus or, if there is no surplus, from net profits
for the current and preceding fiscal year. The parent has approximately
$353,000 in cash plus investments less current liabilities at March 31, 1997.
Without dividends from Pacific Crest Investment, the parent must rely solely on
existing cash and investments which total $442,000 at March 31, 1997. This
amount is also necessary to pay future operating expenses and existing current
liabilities of the parent and for the future possible infusion of capital into
Pacific Crest Investment. The parent also holds 30,000 shares of capital
stock, as Treasury Stock, which could be sold to raise cash if additional
liquidity were needed.
Pacific Crest Investment's ability to pay dividends to the parent is
restricted by California state law, which requires that retained earnings are
available to pay such dividends. Although Pacific Crest Investment and Loan had
retained earnings of $507,000 at March 31, 1997, it is highly unlikely that it
will pay dividends to its parent prior to the third quarter of 1997.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the major factors
that influenced the financial performance of Pacific Crest Capital and its
wholly owned subsidiary, Pacific Crest Investment for the quarter ended March
31, 1997. This analysis should be read in conjunction with the Company's 1996
Annual Report and with the unaudited financial statements and notes as set forth
on pages 1 through 7 of this report.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA For the three months ended
------------------------------------------------------------------------
(Dollars in thousands) 3/31/97 12/31/96 9/30/96 6/30/96 3/31/96
- ---------------------- ------------ ------------ ------------ ------------ ------------
Unaudited Unaudited Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCE
Average Loans $ 210,606 $ 195,691 $ 183,738 $ 189,004 $ 195,016
Average Earning Assets 316,846 276,083 273,636 279,720 269,504
Average Assets 325,690 282,341 282,184 287,411 276,782
Average Deposits 280,133 254,264 256,359 262,243 251,975
Average Equity 24,739 24,108 23,483 22,894 22,172
PERFORMANCE RATIOS
Return on average assets 1.02% 1.11% 1.08% 1.04% 1.03%
Return on average common equity 13.32% 12.99% 12.98% 13.03% 12.83%
Net interest margin 4.77% 4.77% 4.74% 4.58% 4.94%
CAPITAL AND LEVERAGE RATIOS
Risk-based capital ratios:
Tier one 10.23% 10.31% 11.32% 10.90% 9.80%
Total 11.48% 11.56% 12.57% 12.16% 11.06%
Leverage capital ratio 7.36% 7.96% 8.92% 7.87% 7.29%
ASSET QUALITY RATIOS
Allowance for loan losses to total loans 1.62% 1.61% 1.69% 1.82% 2.56%
Allowance for loan losses to nonaccrual loans 506.98% 245.31% 192.09% 77.57% 70.35%
Total nonaccrual loans and OREO to total assets 1.02% 1.60% 1.97% 2.51% 3.96%
============ ============ ============ ============ ============
</TABLE>
8
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME ANALYSIS
The following tables, for the quarter ended march 31, 1997 and 1996, present the
distribution of average assets, liabilities and stockholders' equity, the total
dollar amount of interest income from average interest-earning assets, the
resultant yields and the interest expense on average interest-bearing
liabilities, expressed in both dollars and rates. All average balances are daily
average balances. Nonaccrual loans and nonperforming assets have been included
in the table as loans and investments, respectively, having a zero yield.
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, YIELDS AND RATES
Three Months Ended March 31,
------------------------------------------------------------------------------------
1997 1996
------------------------------------------ ---------------------------------------
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
(Dollars in thousands) Balance Paid Rate Balance Paid Rate
- --------------------- -------------- ----------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $ 210,606 $ 5,740 11.05% $ 195,016 $ 5,682 11.72%
Repurchase agreements 337 4 4.81% 71,588 947 5.32%
Certificates of deposits - - - 300 4 5.36%
U.S. government sponsored
agency securities:
Available for sale 63,667 1,119 7.03% - - -
Held to maturity 42,236 814 7.71% 2,600 34 5.23%
-------------- ----------- ---------- ------------ ----------- ---------
Total interest-earning assets 316,846 7,677 9.83% 269,504 6,667 9.95%
Other real estate owned 3,385 4,370
Other noninterest earning assets 8,983 7,791
Less allowance for loan losses 3,524 4,883
-------------- ----------- ---------- ------------ ----------- ---------
Total assets $ 325,690 $ 276,782
-------------- ----------- ---------- ------------ ----------- ---------
INTEREST-BEARING LIABILITIES:
Savings accounts $ 164,260 2,109 5.21% $ 186,821 2,464 5.30%
Certificates of deposit 96,657 1,366 5.73% 59,982 830 5.57%
Money market checking 19,216 230 4.85% 5,172 63 4.90%
Other borrowings 18,153 249 5.56% - - -
-------------- ----------- ---------- ------------ ----------- ---------
Total interest-bearing liabilities 298,286 $ 3,954 5.38% 251,975 3,357 5.36%
Non interest-bearing liabilities 2,665 2,635
Shareholders' equity 24,739 22,172
-------------- ----------- ---------- ------------ ----------- ---------
Total liabilities and
shareholders' equity $ 325,690 $ 276,782
-------------- ----------- ---------- ------------ ----------- ---------
Net interest income $ 3,723 $ 3,310
Net interest rate spread 4.45% 4.59%
Net interest-earning assets $ 18,560 $ 17,529
Net interest margin 4.77% 4.94%
Average interest-earning assets to
average interest bearing liabilities 106.2% 107.0%
============== =========== ========== ============ =========== =========
</TABLE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME AND EXPENSE
The following table presents the dollar amount of changes in interest
income and interest expense of major components of interest-earning assets and
interest-bearing liabilities due to changes in outstanding balances and changes
in interest rates. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to: (i)
changes on volume (i.e. changes in volume multiplied by old rate) and (ii)
changes in rate (i.e. changes in rate multiplied by old volume). For purposes of
this table,
9
<PAGE>
changes attributable to both rate and volume which cannot be segregated have
been allocated proportionately to changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
For the Quarter Ending
March 31, 1997
--------------------------
1997 compared to 1996
Increase (decrease) due to
--------------------------
Net
(Dollars in thousands) Volume Rate Change
- ---------------------- ------ ------- ------
<S> <C> <C> <C>
CHANGES IN INTEREST INCOME:
Loans $ 451 $ (393) $ 58
Repurchase agreements (935) (8) (943)
Certificates of deposit (4) - (4)
U.S. Government agency securities:
Available for sale 1,119 - 1,119
Held to maturity 511 269 780
------ ------- ------
Total change in interest income 1,142 (132) 1,010
------ ------- ------
CHANGES IN INTEREST EXPENSE:
Savings accounts (295) (60) (355)
Certificates of deposit 504 32 536
Money market checking 172 (5) 167
Other borrowings 249 - 249
------ ------- ------
Total change in interest expense 630 (33) 597
------ ------- ------
Changes in net interest income $ 512 $ (99) $ 413
====== ======= ======
</TABLE>
DETAILED COMPARISONS OF FINANCIAL RESULTS
EARNINGS PERFORMANCE
Net income was $824,000 (or $0.27 per common share on a fully diluted
basis) for the quarter ended March 31, 1997, compared to $711,000 (or $0.24 per
common share on a fully diluted basis) for the corresponding period in 1996.
The improvement in the first quarter of 1997 over the comparable period in 1996
is primarily attributable to an increase in the Company's net interest income
and a reduction in the Company's provision for loan losses.
NET INTEREST INCOME
Net interest income increased by $413,000 or 12.48% to $3.7 million for the
quarter ended March 31, 1997 compared to the same period of 1996. The increase
in net interest income during the quarter ended March 31, 1997 was the result of
an increase of $47.3 million in the Company's average interest earning assets
between the 1997 and 1996 periods.
TOTAL INTEREST INCOME
Total interest income increased by $1.01 million or 15.1% to $7.7 million
for the quarter ended March 31, 1997 compared to the same period of 1996. This
increase was due to an increase in the average interest earning asset balances
of $47.3 million for the quarter ended March 31, 1997 over the comparable period
in 1996. Offsetting this increase was a decline in the yield on the interest
earning assets by 12 basis points to 9.83% for the quarter ended March 31, 1997
compared to the same period of 1996. The decline in the yield on the Company's
earning assets is primarily due to the change in the composition of the earning
asset base, with a higher percentage of the Company's earnings assets, in
securities for the quarter ended March 31, 1997 versus the comparable period of
1996.
Interest income on loans increased by $58,000 to $5.7 million, a 1.02%
increase for the quarter ended March 31, 1997, compared to 1996. The increase
in loan interest income for the first quarter of 1997 was attributable to an
increase in the average balance of loans, partially offset by a decrease in loan
yields between the respective quarters. The average balance of loans increased
by $15.6 million, or 8.0%, to $210.6 million due to the high volume of loan
originations in the fourth quarter of 1996 and the first quarter of 1997. Loan
yields declined
10
<PAGE>
67 basis points from 11.72% for the quarter ended March 31, 1996 to 11.05% for
the quarter ended March 31, 1997. This decline was primarily due to two factors.
First, the prime rate index for loans tied to prime for the quarter ended March
31, 1997 was 8.25% compared to an initial prime rate index of 8.50% for the
quarter beginning March 31, 1996. Second, loan payoffs occurred on loans with
slightly higher yields than the average loan yield in the loan portfolio.
The Company purchased $35.8 million of U.S. government sponsored agency
securities during 1997. The Company posted $1.12 million in income on those
securities classified as available for sale that yielded 7.03% for the quarter
ended March 31, 1997. The Company had no securities in this portfolio category
during the first quarter of 1996. The Company posted $814,000 in income on U.S.
government sponsored agency securities that are classified as held to maturity
during the first quarter ended March 31, 1997, that yielded 7.71%. The Company
posted $34,000 in income on U.S. government sponsored agency securities that are
classified as held to maturity during the first quarter ended March 31, 1996,
which represents a yield of 5.23%.
Interest earned on the Company's securities purchased under resale
agreements decreased by $943,000 for the quarter ended March 31, 1997, when
compared to the same period of 1996. This decline in income was primarily
attributable to a decrease of $71.3 million in the average balance during the
quarter ended March 31, 1997 compared to 1996. Proceeds from the liquidation of
the repurchase agreements in the second, third and fourth quarters of 1996 were
used primarily to purchase the Company's investment securities during the same
periods. The yield decreased from 5.32% in the quarter ended March 31, 1996 to
4.81% for the quarter ended March 31, 1997.
TOTAL INTEREST EXPENSE
Total interest expense for the quarter ended March 31, 1997 increased by
$597,000, or 17.8%, compared to the same period of 1996. The increase in
interest cost resulted primarily from an increase in the average balance of
interest bearing deposits of $46.3 million for the quarter ended March 31, 1997,
as compared to the same period of 1996. In addition, the rates paid on the
Company's interest bearing deposits increased to 5.38% for the quarter ended
March 31, 1997 from 5.36% for the quarter ended March 31, 1996. The stability
in the rates paid on the Company's deposits reflect the shift in the composition
of the deposit portfolio.
Interest expense on certificates of deposit increased by $536,000, or
64.6%, for the quarter ended March 31, 1997, compared to the same period in
1996, due to an increase of $36.7 million in average balance of certificates of
deposit. Also contributing to this increase in interest cost was a 16 basis
point increase in rates paid on certificates of deposit from 5.57% for the
quarter ended March 31, 1996 to 5.73% for the quarter ended March 31, 1997.
Interest expense on savings accounts decreased by $355,000, or 14.4%, for
the quarter ended March 31, 1997, when compared to the same period in 1996, due
to a decrease in the average balance of savings deposits. Average outstanding
savings deposit balances decreased by $22.6 million for the quarter ended March
31, 1997 compared to the same period in 1996. Contributing to this decrease was
a savings deposit rate decrease of 9 basis points from 5.30% for the quarter
ended March 31, 1996 to 5.21% for the quarter ended March 31, 1997.
Interest expense on money market checking increased by $167,000 for the
quarter ended March 31, 1997, when compared to the same period in 1996, due to
an increase in the average money market checking balances. Average outstanding
money market checking balances increased by $14.0 million for the quarter ended
March 31, 1997 compared to the same period in 1996. Partially offsetting this
increase was a rate decrease of 5 basis points from 4.90% for the quarter ended
March 31, 1996 to 4.85% for the quarter ended March 31, 1997.
For the quarter ending March 31, 1997, the Company had average outstanding
borrowings of $18.1 million and paid an average borrowing rate of 5.56%. The
Company did not have a balance in other borrowings as of March 31, 1996. The
Company's borrowings in reverse repurchase agreements during the first quarter
of 1997 helped to finance the purchase of investment securities.
PROVISION FOR LOAN LOSSES
During the quarter ended March 31, 1997, the Company's provision for loan
loss declined by $295,000 to $230,000 compared to the same period in 1996. The
decline in the provision is the result of Management's evaluation of current
loss exposure, which has improved during the first quarter of 1997 as compared
to 1996, due to the sale of nonaccrual and TDR loans in June 1996 as well as the
improved commercial real estate market conditions in 1997.
11
<PAGE>
Although the Company maintains its allowance for loan losses at a level
which it considers to be adequate to provide for potential losses, there can be
no assurance that such losses will not exceed the estimated amounts, thereby
adversely affecting future results of operations. The calculation of the
adequacy of the allowance for loan losses is based on several factors, including
underlying loan collateral values, delinquency trends and historical loan loss
experience. The ratio of nonaccrual loans to total loans was .32% at March 31,
1997 and 0.66% at December 31, 1996. The ratio of the allowance for loan losses
to nonaccrual loans was 507% at March 31, 1997 and 245% at December 31, 1996.
The allowance for loan losses as a percentage of loans stood at 1.62% at March
31, 1997, compared to 1.61% at December 31, 1996.
NONINTEREST INCOME
Noninterest income for the quarter ended March 31, 1997 decreased by
$62,000 as compared to the same period in 1996. The major components of
noninterest income for 1997 and 1996 include late fees and loan prepayment fees.
NONINTEREST EXPENSE ANALYSIS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31
---------------------------------------
Dollar %
Dollars in thousands 1997 1996 Change Change
- ---------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Valuation adjustments to other
real estate owned 130 65 65 100%
Other real estate owned expense 14 8 6 75%
Salaries and employee benefits 1,246 1,063 183 17%
Net occupany expenses 361 351 10 3%
FDIC insurance premiums 25 16 9 56%
Credit and collections expenses - 12 (12) (100%)
Communication and data processing 165 119 46 39%
Other expenses 282 153 129 84%
------ ------ ------ ------
Total noninterest expense 2,223 1,787 436 24%
------ ------ ------ ------
</TABLE>
NONINTEREST EXPENSE
Noninterest expense for the quarter ended March 31, 1997 increased
$436,000, or 24%, over the same period in 1996. These changes are detailed on
the table above and significant changes in noninterest expense are described
below.
The valuation adjustment to OREO for the first quarter ended March 31, 1997
increased by $65,000 compared to the same period in 1996. The increase to the
Company's OREO valuation adjustment is a result of the Company recording partial
write downs on two OREO properties in 1997.
Salaries and employee benefits for the quarter ended March 31, 1997,
increased by $183,000, or 17%, as compared to the same period in 1996. The
increase is the result of marketing and administrative bonus accrual of $120,000
accrued in 1997 versus $50,000 in 1996. In addition, the first quarter of 1997
includes the salary cost of the Company's SBA department that was created in the
second and third quarters of 1996. In addition, the Company provided an
approximate 4% salary increase to most employee base salaries in January 1997.
FDIC insurance premiums increased by $9,000 for the quarter ended March 31,
1997 compared to the same period in 1996. The first quarter 1997 insurance
premiums include FICO Bond Assessments.
Other expenses for the quarter ended March 31, 1997, increased by $129,000,
or 84%. These increases are the result of a $100,000 reduction in the accrual
for Delaware franchise taxes which occurred in the first quarter of 1996, and
small increases to other cost categories as a result of the establishment of the
Company's SBA department, and increases to the Company's commercial lending
operations.
INCOME TAX PROVISION
For the quarters ended March 31, 1997 and 1996, the Company estimated its
provision for income taxes at $547,000 or 39.9% and $450,000 or 38.8%,
respectively. The difference between the Company's statutory tax rate of 41.6%
and its effective rates for the quarters ended March 31, 1997 and 1996 is due to
California tax deductions (credits) generated by the Company on loans made in
special tax zones within California.
12
<PAGE>
FINANCIAL CONDITION
SUMMARY OF CHANGES IN BALANCE SHEET
MARCH 31, 1997 COMPARED TO DECEMBER 31, 1996
Total assets of the Company increased to $342.8 million at March 31, 1997
from $304.1 million at December 31, 1996, a $38.7 million increase. This
increase reflects the purchase of approximately $35.8 million of investment
securities and $4.9 million of loan originations, net of loan maturities and
payoffs, during the first three months of 1997. The Company funded this asset
growth by increasing its interest bearing liabilities by $39.1 million to $315.8
million at March 31, 1997 from $276.7 million at December 31, 1996. The
increase in interest bearing liabilities reflects an increase in new deposits of
$19.1 million, primarily due to the growth in the Company's savings account
balances that grew $14.3 million and certificates of deposit balances that grew
$6.4 million during the first quarter of 1997. Other borrowings were increased
by $20.0 million to $30.0 million at March 31, 1997.
Loans, net of deferred fees and the allowance for loan losses, increased by
$4.7 million to $212.4 million at March 31, 1997, from $207.7 million at
December 31, 1996. The Company originated $11.6 million in new real estate and
business loans during the first three months ended March 31, 1997. Off-setting
these originations, the Company experienced $6.3 million in loan payoffs,
$154,000 in gross loan transfers prior to writeoffs to other real estate owned,
("OREO") and $152,000 in actual loan writeoffs during the three months ended
March 31, 1997.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at March 31, 1997 increased by $88,000 from
the level at December 31, 1996, and represents 1.62% of outstanding loans at
March 31, 1997. The slight increase in the general loan loss reserve from $3.4
million at year end 1996 to $3.5 million at March 31, 1997 reflects net charge-
offs of $142,000 offset by the addition of $230,000 in loan loss provision.
Management and the Board of Directors regularly review loan performance and the
adequacy of the allowance for loan losses.
The following table sets forth certain information with respect to the
Company's allowance for loan losses and valuation adjustment to OREO as of the
dates or for the periods indicated:
<TABLE>
<CAPTION>
At or for the Period
ALLOWANCE FOR LOAN LOSSES Ended March 31,
(Dollars in thousands) 1997 1996
- ---------------------- ------------ ------------
<S> <C> <C>
Balance at beginning of period: $ 3,400 $ 4,500
Commercial real estate mortgages:
Chargeoffs (152) (175)
Recoveries 10 -
Provision for loan losses: 230 525
------------ ------------
Balance at end of period: $ 3,488 $ 4,850
============ ============
Allowance for loan losses as a % of loans 1.62% 2.56%
Net loan Charge-offs $ 142 $ 175
Valuation adjustment to OREO 130 65
------------ ------------
Total net loan Charge-offs & OREO valuation adjustment $ 272 $ 240
============ ============
</TABLE>
NON-PERFORMING AND RESTRUCTURED ASSETS
The following table sets forth loans accounted for on a nonaccrual basis,
OREO and loans that were impaired due to the loans being restructured at the
dates indicated:
13
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1997 1996
- ---------------------- --------- ------------
<S> <C> <C>
Nonaccrual loans $ 688 $ 1,386
Other real estate owned 2,799 3,469
--------- ---------
Total nonaccrual loans and OREO 3,487 4,855
--------- ---------
Total nonperforming assets to total assets 1.02% 1.60%
--------- ---------
Other impaired loans (restructured loans) $ 719 $ 719
========= =========
</TABLE>
The following tables represent the changes in the nonaccrual loans and OREO
assets for the three months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
NONACCRUAL LOAN ACTIVITY March 31, March 31,
(Dollars in thousands) 1997 1996
- ---------------------- --------- ------------
<S> <C> <C>
Nonaccrual loans at the beginning of the period $ 1,386 $ $4,985
--------- ----------
Net change/activity (698) 1,909
--------- ----------
Nonaccrual loans at the end of the period 688 6,894
========= ==========
<CAPTION>
OTHER REAL ESTATE OWNED ACTIVITY March 31, March 31,
(Dollars in thousands) 1997 1996
- ---------------------- --------- ------------
<S> <C> <C>
OREO at the beginning of the period $ 3,469 $ 4,355
Net change/activity (670) 111
--------- ----------
OREO balance at the end of the period 2,799 4,466
========= ==========
</TABLE>
NONACCRUAL LOANS
Nonaccrual loans are loans, not classified as "troubled debt
restructurings" or OREO, that show little or no current payment ability. These
loans are supported, however, by collateral or cash flow that support the
collectibility of the Company's remaining book balance, after consideration of
the allowance for loan losses. The Company had two nonaccrual loans at March
31, 1997, totaling $688,000. During the first quarter of 1997, the Company had
transferred one loan of $154,000 to OREO status, had one nonaccrual loan payoff
and partially charged off a third nonaccrual loan. Nonaccrual loan balances are
net of any prior write-offs, but any specifically assigned portions of the
general allowance for loan losses are not deducted from the nonaccrual loan
balances above.
OTHER REAL ESTATE OWNED
Assets classified as OREO include foreclosed real estate owned by the
Company. The Company had five properties in this category at March 31, 1997,
totaling $2.8 million.
The Company's OREO balance declined to $2.8 million at March 31, 1997, from
$3.5 million at December 31, 1996, a decline of $670,000 or 19.3%. This
reflects the sale of one property with a net balance of $661,000 during the
three months ended March 31, 1997. The Company transferred one nonaccrual loan
of $154,000 into OREO for the quarter ending March 31, 1997. The Company
recorded partial write downs on two OREO properties of $130,000 for the first
quarter of 1997.
OTHER IMPAIRED LOANS
The Company had other impaired loans which the Company has modified
(restructured) also classified as a Troubled Debt Restructuring ("TDR"). A TDR
is a loan in which the Company, for reasons related to the borrowers' financial
difficulties, grants a permanent concession to the borrower, such as a reduction
in the loan's fully-indexed interest rate, a reduction in the face amount of the
debt, or an extension of the maturity date of the loan, that the Company would
not otherwise consider. At March 31, 1997, the Company had one loan with an
aggregate principal balance of $719,000 that was categorized as a TDR. TDR
balances are net of any prior write-offs, but any specifically assigned portions
of the allowance for loan losses are not deducted from the above TDR loan
balance.
14
<PAGE>
CAPITAL RESOURCES
The Company's objective is to maintain a strong level of capital that will
support consistent and sustained asset growth, anticipated credit risks and to
ensure that regulatory and industry guidelines and standards are maintained.
Pacific Crest Investment is subject to leverage and risk-based capital adequacy
standards applicable to FDIC insured institutions. At March 31, 1997, Pacific
Crest Investment was in compliance with all such requirements.
Shareholders' equity increased by $280,000 to $24.7 million at March 31,
1997. This increase reflects the increase to shareholders' equity by the first
quarter net income of $824,000 and a $61,000 increase resulting from the
purchase of stock under the employee and directors' stock purchase plans. This
increase was partially offset by a $605,000 increase to the unrealized loss on
securities available for sale.
Pacific Crest Investment is required to maintain certain minimum capital
levels and must maintain certain capital ratios to be considered "well
capitalized" under the prompt corrective action provisions of the FDIC
Improvement Act.
The following table sets forth Pacific Crest Investment's regulatory
capital ratios at March 31, 1997, and December 31, 1996:
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS At March 31, 1997 At December 31, 1996
-------------------------------------- --------------------------------------
Minimum Minimum
Required Actual Excess Required Actual Excess
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ratio 4.00% 7.36% 3.36% 4.00% 7.96% 3.96%
Tier 1 risk-based capital ratio 4.00% 10.23% 6.23% 4.00% 10.31% 6.31%
Total risk-based capital ratio 8.00% 11.48% 3.48% 8.00% 11.56% 3.56%
============ ============ ============ ============ ============ ============
</TABLE>
LIQUIDITY
The Company's primary sources of funds are deposits and payments of
principal and interest on loans. While maturities and scheduled principal
amortization on loans are a reasonable predictable source of funds, deposit
flows and mortgage loan prepayments are greatly influenced by the level of
interest rates, economic conditions, and competition.
The Company's holdings of cash and cash equivalents during the three months
ended March 31, 1997 remained relatively level, decreasing $1.7 million to $1.1
million at March 31, 1997 from $2.8 million at December 31, 1996. The Company
purchased $35.8 million of U.S. government sponsored agency securities during
the first quarter of 1997. The Company funded the growth in securities and net
loan originations, by raising $19.1 million of interest bearing deposits, and by
borrowing $20.0 million in reverse repurchase agreements.
Loans, net of deferred fees and the allowance for loan losses, increased by
$4.7 million to $212.4 million at March 31, 1997, from $207.7 million at
December 31, 1996. The Company originated $11.6 million in real estate and
business loans during the three months ended March 31, 1997. Off-setting these
originations, the Company experienced $6.3 million in loan payoffs, $154,000 in
gross loan transfers prior to writeoffs to other real estate owned, ("OREO") and
$152,000 in actual loan writeoffs during the three months ended March 31, 1997.
Pacific Crest Investment's ability to pay dividends to the parent is
restricted by California state law, which requires that sufficient retained
earnings are available to pay the dividend. Although Pacific Crest Investment
and Loan had retained earnings of $507,000 at March 31, 1997, it is highly
unlikely that it will pay dividends to its parent prior to the third quarter of
1997.
15
<PAGE>
Part II-OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Not applicable.
(b) REPORTS ON FORM 8-K:
-------------------
The Company filed one report on Form S-8 during the quarter ended March
31, 1997. This report represented the registration of Pacific Crest Capital
Inc.'s 1996 Non-Employee Directors' Stock Plan.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC CREST CAPITAL, INC.
Date: May 13, 1997 /s/Gary Wehrle
-------------------------------- ---------------------------------------
Gary Wehrle
President and Chief Executive Officer
Date: May 13, 1997 /s/Robert J. Dennen
-------------------------------- ---------------------------------------
Robert J. Dennen
Vice President, Chief Financial Officer
Corporate Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,050
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72,293
<INVESTMENTS-CARRYING> 45,960
<INVESTMENTS-MARKET> 45,156
<LOANS> 215,839
<ALLOWANCE> 3,488
<TOTAL-ASSETS> 342,750
<DEPOSITS> 285,802
<SHORT-TERM> 30,000
<LIABILITIES-OTHER> 2,200
<LONG-TERM> 0
0
0
<COMMON> 24,748
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 342,750
<INTEREST-LOAN> 5,740
<INTEREST-INVEST> 1,937
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,677
<INTEREST-DEPOSIT> 3,705
<INTEREST-EXPENSE> 3,954
<INTEREST-INCOME-NET> 3,723
<LOAN-LOSSES> 230
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,223
<INCOME-PRETAX> 1,371
<INCOME-PRE-EXTRAORDINARY> 1,371
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 824
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 4.77
<LOANS-NON> 688
<LOANS-PAST> 3,776
<LOANS-TROUBLED> 719
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,400
<CHARGE-OFFS> 152
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 3,488
<ALLOWANCE-DOMESTIC> 3,488
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
